The hedge fund manager who bet against the bubble — and hid $400M in losses

Michael Berger was a hedge fund manager who ran the Manhattan Investment Fund during the late 1990s, betting against US technology stocks that he believed were overvalued. The strategy was a disaster: the market kept rising, and Berger's short positions kept losing money. By the time the fund collapsed, the losses totaled approximately $400 million.

Rather than reporting the losses to investors, Berger hid them for more than three years. He issued false statements showing the fund was profitable, and used new investor money to pay redemptions to earlier investors — a classic Ponzi-like structure. His prime broker, Bear Stearns, was the heavily regulated firm that enabled Berger to mislead his clients and the fund's administrator and auditor. The fraud was uncovered only when Bear Stearns itself complained to the SEC.

The SEC shut down the fund and a court-appointed trustee took control of the remaining assets. Berger was charged with securities fraud. He jumped bail and disappeared, spending five years as a fugitive before being arrested in Austria. Because he was an Austrian citizen, he was not extradited to the United States, where he would have faced a six-and-a-half-year prison term. He served almost two years in an Austrian prison. The lawsuits against Bear Stearns dragged on for years.